When you keep your investment property for long enough, you will reach a time where your losses are turning into gains.
This occurs for two reasons:
•The rental income you are receiving has risen as it keeps up with the market value for rents.
•When the property is purchased, a large sum is sometimes put down as a deposit which reduces the money borrowed and so making the investment more positively geared than it would otherwise be if a purchaser borrowed the full amount using a separate property as security for the loan.
Other factors to consider are:
The interest-only mortgage will, if your finances are set up accordingly, steadily increase by the amount you have contributed towards property management and other outgoings (usually less than 1% p.a.).
This will delay the onset of the investment becoming positively geared, however once your rental income exceeds your mortgage repayments and expenses you are no longer negatively geared. You may instead be neutrally-geared or positively-geared.
From an accounting point of view, no negative gearing means no tax advantages, however this shouldn’t mean you rush out and sell.
You may have to pay more tax because the income you’re making is more than your losses, but the fact is you are making money, which is the reason why you invested in the first place.
At this time the property will be re-valued showing capital growth then allowing you to have your portfolio expanded by using this increase in equity as security for another purchase and once again using the extra income to supplement the loss on the new purchase.
The temptation is to sell and then plough your profits into another investment property. Before you do this, seek advice from a tax agent or Accountant. Remember, stamp duty and Agents commission alone can be a prohibitive disincentive.